FDI Directed to Thailand by Chinese Enterprises for Circumlocutory Export

The authors have conducted a survey to clarify FDI by Chinese enterprises in Thailand. The aim of our research is to verify the hypothesis that avoiding trade friction is an important determinant of China’s outward FDI, through detailed investigation of individual project. Another aim is to confirm the trends of exports of the items involved from both China and Thailand. We discuss the role of FDI investment in relation to the behavior of the enterprises involved. Literatures indicate that multiple factors influence FDI, including trade barriers. We analyzed individual investment data from the BOI of Thailand. We found that, during 2007 to 2014, 94 projects out of a total of 240 intended to produce items which caused trade friction when exported from China. In fact, 12 of these 94 projects announced that they invested in Thailand to avoid trade frictions. Based on these results, we conclude that a substantial portion of China’s outward FDI in Thailand is to prevent trade friction by aiming to export from Thailand. Exports of such goods from China continue to increase, whereas exports from Thailand are stagnant. A plausible explanation is that these investments were conducted by less competitive enterprises in China.